Working Class v. Wealthy

November 19, 2010 9:05 pm

Once again, Congress needs to extend unemployment benefits as the national unemployment rate hovers around 10 percent. Once again, some lawmakers, mostly Republicans, are refusing to back an extension if it is not paid for by cuts in other parts of the budget.

Ideally, all government spending should have an identified funding source, but the selectivity of calls to have some expenditures covered and others not is stunning. Many of the same people arguing that an unemployment benefit extension (which would cost $12.5 billion for three months) must be paid for have no problem supporting tax cuts for the wealthiest Americans (costing $700 billion over 10 years) that are not.

Beyond being hypocritical, this is classism at its worst.

From a purely economic perspective, extending unemployment benefits makes more sense than extending tax cuts, especially for those making more than $250,000.

This point was made by Alan Blinder, a former vice chair of the Federal Reserve and a respected economist, in a July opinion column in The Wall Street Journal.

He offered three budget decisions that would add to the federal deficit. One was to increase unemployment benefits by a $1, another was to give a $1 tax cut to someone making $50,000 a year and the third was to give a $1 tax cut to someone earning $5 million a year.

Although the spending is the same, the long-term budget impacts are not. An unemployed worker is likely to quickly spend all of the dollar; consumer spending drives nearly three-quarters of the economy. The $50,000-earner will spend most and save a little. The $5 million-earner will save most of the $1.

“Paying more in unemployment benefits offers the most spending ‘bang’ for the budgetary ‘buck,’” Mr. Blinder wrote. “Extending the Bush tax cuts for the wealthy offers the least.”

Since World War II, Congress has never failed to extend federal unemployment benefits when the unemployment rate was more than 7.2 percent. Because of the recession, federal benefits have been extended four times, making for the longest duration of extended benefits in history. Unemployment typically consists of 26 weeks of state and employer-funded benefits. Emergency federal benefits were added in 2008 and extended as part of the recovery act.

The current extension of federal benefits, which was passed in July, expires on Nov. 30. Nationally, 5 million people are receiving these benefits. If an extension is not approved, 400 Maine residents will lose these benefits each week beginning Dec. 1. This will have a drag on the state economy and could potentially stall economic growth.

A reasonable compromise — a three-month extension — did not pass the House of Representatives on Thursday because a two-thirds vote was needed.

Members of Congress who oppose the extension but support extending the tax cuts must be sure they can tell laid-off American workers that helping them pay their bills and buy necessities wasn’t worth the cost, while tax cuts for the wealthy are. Better yet, they could vote to use some of the money saved by not extending the tax cuts to pay for a short-term extension of unemployment benefits.